This blog exists so that I can share my ideas on short-term trading with those who are interested in listening.

Thursday, March 22, 2007

Lesson of the Day

There is a reason that good traders teach and preach the importance of TREND ALIGNMENT across the timeframes relevant to your trade. Yesterday, in the excitement of a runaway market with FED euphoria, I went long ICE on strength above the highs made earlier in the day, anticipating a reversal of the downtrend so clear on the daily timeframe. The stock appeared to hold support at the 10dma, and looked headed upward. However, ICE sold off (on high volume) on the short term chart yesterday afternoon, foretelling today's selloff and reminding me that one should never hold a long position in a downtrending stock - and if you decide to anyway - don't trust it. That is doubly true if it's a listed stock. Another post-it reminder will have to be added to those already hanging on my monitors...

I expect tomorrow to be a slow day in the markets given the lack of data beyond Existing Home Sales data and the fact that it's Friday following the action we've seen this week. I probably won't trade, but will flip through some charts later this evening and if I find something really interesting I'll post it tonight. (One decent looking short opportunity however that caught my eye is WFMI.)

4 comments:

Trend Alignment exists when the primary trend is consistent across the short-term, mid-term, and long-term timeframes relevant to your trade. For example, if you're going long for a swing trade, you would want to see the primary trend headed upward on something like the 10-minute, hourly, and daily timeframes. This was not the case on my ICE trade (and I knew it) therefore it was a lower probability trade. JG

The definition of an uptrend is higher highs and higher lows. If that is what you're seeing the MA's should be trending upward as well (and those MA's, ideally, should be aligned: shorter MA's above longer MA's).

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